Larry Summers may have been right about the risk of inflation. jonathanchait writes on the conclusions we can draw from this episode
Summers, the former Clinton and Obama administration Treasury secretary, was telling everybody who would listen at the beginning of the year that the economy faced a much higher risk of inflation than either the Federal Reserve or the Biden administration believed. Summers in particular warned that the American Rescue Plan, a $1.9 trillion emergency fiscal measure, would pump too much demand into the economy too fast and risk overheating.
There are two conclusions to be drawn from this episode, one immediate and one broader. I’m fairly confident none of the relevant parties will draw the correct lessons, but I’m going to say what they are anyway. Jason Furman, one of the few liberal economists who largely agreed with Summers on inflation, has been saying for months that Build Back Better will not worsen inflation:
There’s no question that we need substantial increases in public investment, substantially more attention to sustainability and preserving the planet, substantially more focus on the needs of children, particularly children from lower-income and middle-class families. And that we need to take better care of our seniors. And so I think President Biden’s judgment, that this is the moment for a large-scale increase in public investment, is correct.
Summers is a peculiar figure who liberals are especially, and not irrationally, motivated to oppose. His long tenure in Washington, D.C., and as Harvard president, where he leaped into disputes both inside and outside his field of expertise, has created a trail of people who dislike him personally, ideologically, or both. He has been saddled with the blame for the Obama administration undershooting its 2009 fiscal stimulus, even though the story is a bit more complicated.
This kind of paranoia was hardly representative of mainstream Democratic thought. But it is indicative of a hothouse atmosphere in which prominent left-wing intellectuals earnestly believed that Summers was ginning up imaginary concerns he didn’t actually believe himself in order to tank the administration in revenge for failing to offer him a job.
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